At Capacity

Many of us tend to live our lives at capacity. Our lives are busy, packed with activities both personal and work related. We rush our children from school to after school activities to organized play dates to fast food meals on the go. We don’t even go into the restaurants anymore but simply drive through so we can pick up our food on the run. Our children are so busy that they need social calendars to keep track of their myriad activities. (I seem to remember when I was a kid being told to simply go outside and play. If you were really lucky a neighbor would have just had a load of top soil delivered and they would let you play in it. There were no organized play activities.) We try to fit in so many things into our weekends that we can’t get to during the week that by Monday morning we are exhausted from our days of rest.

A search on the phrase at capacity returns hundred of hits. The hits describe all sorts of systems and activities that are operating at or near capacity. Everything from roads, to hospitals, universities, concerts, ball games, water supplies etc. are just about maxed out. One report described how Disney is occasionally forced to shut down their admission line to the theme park because the park was at capacity. Airports and airlines are once again at capacity and just the other day there was a report that July was among the worst ever for delays and cancellations of flights. The story indicated that it was partially induced by weather but also due to our airline transportation system operating at capacity. It sometimes feels like we engineer obsolescence, or an at capacity limit right into all of our systems and activities, for you wouldn’t want extra of something, that would be wasteful.

When you get a product delivered that needs assembly and they send you just the right number of bolts or screws you can rest assured that at least one of those critical components will slip away and forever be lost to the little house goblins that collect such things. I am pretty sure they also have a fairly terrific selection of socks from the dryer. When I get a product delivered and they send me a few extra parts of the pieces I am likely to lose or drop, I am forever grateful and more likely to repurchase from that supplier.

As a consumer what would it be like for you to walk up to a ball park or a theater or a concert hall, buy a ticket without waiting in line, in fact a terrific ticket, great seats, then casually stroll into the venue and enjoy a really great show? You would probably enjoy yourself tremendously wouldn’t you? And in fact you might be willing to pay just a bit more for an experience like that (that of course is the notion behind first class on airlines, at least as I recall what first class used to be like).

Organizations like to operate at capacity, maximizing the utilization of each staff member, each asset to what is perceived to be the maximum, operating under the notion that it is the path to superior performance and profit. But is that always true?

If you build the road, they will come. There is a concept out there called induced demand; the thinking behind it goes something like this. Commuters in large cities are continually clamoring for better and more roads to help ease their long waits in bumper to bumper traffic as they travel from home to work and back. There was a study done regarding road congestion to determine the impact of road development on congestion. What was found was a bit surprising. As new roads were built in metropolitan areas, in an effort to relief the congestion, no relief was to be found. The new road simply extended the reach of the metropolitan area and caused the congestion to move along with the road construction. The available road capacity created an induced demand for additional housing and development, simply keeping the congestion at the level it had been at. Commuters can’t catch a break.

So the question arises if an organization such as Disney were simply to add additional capacity so they would not have to shut down at the “at capacity” level they had reached would more people simply show up, once again pushing them to the edge albeit at a higher capacity level? Greeting card manufacturers try to use the notion of induced demand to their benefit. They do their best to create an induced demand by inventing new reasons for sending out cards to mark special occasions. Sometimes they are successful, sometimes not. Some consulting companies would like nothing better than to create the next business fad, creating an induced demand for their product, with businesses wondering how they ever got by without it. Other examples of induced demand abound.

The war in Iraq is illustrative of two different points of view regarding working at capacity. Donald Rumsfeld the initial architect of the current conflict felt that you go in with just enough troops to do the job. You don’t waste resources; you maximize the ability of the force you have to wage war. You use the army in a sense at capacity, just enough force to get it done. In the rush to battle he was infamously quoted as saying that “as you know, you have to go to war with the Army you have, not the Army you want”, in reference to the army not being fully equipped for the coming battles. That might be true if you are fighting for your very existence or the existence of your country but that was certainly not the case. Colin Powell had a different philosophy regarding ensuring success on the battlefield. He was the architect of the first Iraqi war. His philosophy was you go to war with an overwhelming force, a force that is so far beyond what your enemy can field that you are hopefully ensured a quick and less bloody confrontation. You provide excess capacity especially of critical components to ensure success, to maximize your potential for a win.

Think of this from the soldier’s viewpoint for a minute. Would you rather go to war knowing that you are part of an army that is fielding an overwhelming force against an enemy or that you are part of a force that has just enough strength to get the job done? In which scenario might you have more confidence that you might come home alive? In which scenario will the morale of the troops be higher?

I have to wonder if the same principles hold true in the day-to-day business world. I would argue that they do. By maximizing the utilization of the individual employee there is no slack, no ability to take advantage when new opportunities come along. The notion of induced demand, an organization having the capacity to better serve their customers by having more products and services available to them would also seem to hold. You of course have to be careful not to have too much excess capacity, but excess capacity should not be viewed as wasteful but rather as the ability to respond to unexpected customer demands and opportunity. The ability to have excess capacity should be built into the basic cost structure so as to assure that the ability to respond to customer needs does not equate to bankruptcy. The ability to be responsive, to give customers the service they need without requiring them to wait in line just might lead to more positive customer relationships and hence a desire on the part of the customer to conduct more business with that organization.

Excess capacity does not need to exist throughout the entire organization. Excess capacity will have a greater impact on the organization’s ability to perform if it is concentrated into mission critical areas, the guts of the organization. Mission critical areas are those that are directly involved in servicing or providing product to your customers, those areas that impact your ability to deliver the most or those that can severely impact the organization if they were to fail.

Running an organization at capacity should not be viewed as running a tight ship; rather running at capacity should be viewed as creating a situation for missing potential opportunities and increasing risk to the organization.